Senior Executive Officers' Tripartite Talk Making Responsible Decisions
Toward the IHI Group's Desired State

Morita: Not all of the IHI Group's businesses produce visible results immediately after they begin. It often takes a considerable amount of time before they generate profits.
Therefore, if the IHI Group decides whether to "continue" or "discontinue" an initiative based solely on short-term results, it risks terminating initiatives that are, in fact, essential to its future competitiveness.
The first thing the IHI Group assesses is whether an initiative will become a source of future competitiveness and a pillar of future earnings, and whether it is worth pursuing even if it requires a long-term commitment. Based on that assessment, the Group then determines how to manage near-term earnings and the associated investment burden.
The reason the IHI Group adopted a time horizon extending to 2040 was not to discuss an idealized vision of the distant future. Rather, it reflects the fact that the appropriate time horizon for evaluating the IHI Group's businesses is inherently not a short-term one.

Sato: The civil aero engine business provides a clear example of this business structure.
New engines do not generate substantial profits immediately upon delivery. Earnings accumulate over an extended period through maintenance, repair, and the supply of spare parts. In fact, engines introduced to the market more than 10 years ago continue to be major sources of earnings today.
In other words, today's investments are primarily aimed at laying the foundation for future earnings rather than generating immediate profits. If investment decisions are based solely on short-term profitability, the future sources of earnings themselves will be diminished. In the civil aero engine business, the IHI Group determines what actions should be taken today based on this inherent time lag.

Kobayashi: The same point applies to the energy and infrastructure businesses. Looking only at existing businesses, concentrating on projects that generate profits over a relatively short period may appear to be the more efficient approach. However, that alone will not create new markets.
New businesses are launched only when multiple conditions are in place. That is why it is essential to secure cash flow from the IHI Group's existing businesses while directing resources toward new initiatives. Determining how to achieve both simultaneously is, in my view, one of management's most important responsibilities.

Morita: Fundamentally, the IHI Group cannot strengthen every business equally. Each of its businesses has contributed to the Group's value to date, but its management resources are finite.
Accordingly, the IHI Group is reviewing how it allocates resources, focusing on the businesses that will continue to generate value and contribute to the Group's overall competitiveness.
The same applies to technology. The IHI Group does not make decisions simply because a technology offers superior performance or is new. What matters is whether that technology will remain a source of competitive advantage over the long term.
For example, technologies that become increasingly difficult for competitors to replicate as quality, track record, and know-how accumulate grow stronger over time. The IHI Group concentrates its resources on such technologies.
Conversely, even if a technology is technically viable, the IHI Group assigns it a lower priority if it is unlikely to provide meaningful differentiation or is easily exposed to price competition.

Kobayashi: From a business development perspective, the IHI Group focuses on two points.
The first is whether a business can continue to generate value after delivery rather than ending as a one-time transaction. The second is whether the business can expand through the involvement of the IHI Group.
The important point is that the IHI Group is not simply responding to existing demand. It is considering how to transform a technology into a sustainable business.
Take the IHI Group's ammonia initiatives as an example. Its initial thinking was, "Since the IHI Group can burn ammonia, it only needs to sell that equipment." However, that approach would end with individual equipment deliveries and would offer only limited potential for business expansion.
Instead, the Group has built an integrated business that extends beyond combustion technology to include ammonia fuel production, transportation and storage, supply, and utilization. By establishing the conditions required for social implementation, including government support programs and supporting clients' investment decisions, the IHI Group aims to build a sustainable business that generates long-term value.
In that sense, what the IHI Group considers is not merely the size of the market, but whether it can create a business structure in which value continues to accumulate over time.

Sato: The same basic thinking applies in the aerospace domain.
Taking on a wide range of new projects may increase sales in the short term. However, if the IHI Group's supply capacity is spread too thin, it will be unable to allocate sufficient resources to the areas that should be strengthened.
Accordingly, the IHI Group makes decisions based not on the number of projects, but on where profits will accumulate over the long term. It concentrates its resources on the areas that generate value not only from new engines, but also from subsequent maintenance, repair, and spare parts.
In addition, the aircraft engine business is supported by an integrated ecosystem encompassing high-temperature-resistant materials, the technologies to process those materials, quality assurance, certification, and maintenance systems.
Therefore, the IHI Group identifies which stages of the value chain will generate sustainable profits in the future and determines how to maintain and strengthen the capabilities required for those stages.

Kobayashi: Yes. It is important to distinguish between having the technology and having a viable business.
What the IHI Group evaluates is whether clients that would use the technology will actually make capital investment decisions, whether the necessary regulatory frameworks and commercial ecosystem will be in place, and whether the business can be sustained over the long term.
If these conditions are not met, the technology may be technically mature, but it cannot deliver sufficient value as a business.
In such cases, the IHI Group may continue it as a research and development initiative, explore alternative combinations, or apply the technology within an existing business.

Morita: The same applies from the research and development perspective. Ideally, research investment should lead to a business as quickly as possible. At the same time, even when the technology is ready, the business or market may not yet be ready to adopt it.
In such cases, the IHI Group distinguishes between technologies that are directly linked to current business opportunities, those that further strengthen the competitiveness of existing businesses and those that should be retained as future options.
The Group evaluates each from perspectives such as the time horizon over which it is expected to contribute to a business and the value it can create when combined with a particular business.
The IHI Group's criterion is how the technology will contribute to future competitiveness. The Group assesses not only whether it will generate profits immediately, but also whether it will strengthen the IHI Group's long-term competitive position.

Sato: In the aircraft engine business, the IHI Group also evaluates opportunities from the perspective of the supply systems required to support them. Even when a technology is feasible, it cannot become a sustainable business unless the materials, manufacturing processes, and maintenance capabilities needed to provide it reliably over the long term are in place.
In the aerospace sector in particular, products are expected to be supported reliably over an extended period once they enter service. Therefore, business decisions cannot be based on whether something can be produced. The IHI Group must also assess whether it can continue to be supported throughout its lifecycle, including the resilience and sustainability of the supply chain.

Morita: While demand remains strong, the IHI Group's capacity to meet it is constrained by limitations in human capital, production facilities, and the supply chain.
Therefore, deciding where to allocate resources is, in itself, the IHI Group's growth strategy.

Kobayashi: Human capital, in particular, is a major constraint. Shifting people to one business inevitably creates shortages in another.
For that reason, the IHI Group makes decisions not from the perspective of individual businesses, but based on where resource allocation will be most effective for the Group as a whole. Building on the strengths and capabilities accumulated through its existing businesses, the Group determines where to make additional resource allocations.
What is important in making that decision is not only the business's short-term profitability, but also its future growth potential, how it will contribute to other businesses, and the extent of its impact on the value of the Group as a whole.

Sato: In the civil aero engine and defense aero engine and equipment businesses, the key is not simply to respond to demand by increasing headcount, but to maximize output with a limited workforce.
To achieve this, the IHI Group is advancing initiatives such as automating production processes, leveraging digital technologies, and optimizing work allocation through AI.
Although demand is strong, opportunities will be lost if the IHI Group's supply capacity cannot keep pace. That is why the Group is focused on fundamentally changing the way it operates to improve productivity.

Morita: The greatest risk is that the IHI Group's supply capacity will fail to keep pace with expanding demand.
Therefore, the IHI Group is continuously enhancing its supply capacity by reviewing the allocation of resources. The Group is bringing forward the investments it needs and continuously reassessing where and to what extent resources should be allocated so that it does not miss growth opportunities.

Kobayashi: Another risk is that the conditions the IHI Group anticipates may not materialize as planned. Specifically, if clients delay their capital investment decisions, institutional frameworks are not established in a timely manner, or supply systems cannot be developed sufficiently, the launch of the business will be delayed.
Demand does not emerge and expand naturally. Actual transactions materialize only when the necessary conditions, including clients' capital investment decisions, institutional frameworks, and supply infrastructure, are all in place.
To address these issues, the IHI Group is working to facilitate clients' capital investment decisions through ongoing dialogue, working to advance the necessary policy and government programs, and building supply systems in collaboration with partners.
Through these initiatives, the IHI Group believes it is important to proactively establish the conditions necessary for the business to move forward.

Sato: In the civil aero engine business, instability in the supply chain is a key risk.
To address this, the IHI Group identifies bottleneck processes and capacity constraints and reinforces the supply chain through the necessary investments and partnerships. It is essential to determine which points would cause the entire operation to stop if disrupted and address those areas as a priority.
Because a delay in a single component or process can readily propagate throughout the entire production system for an aero engine, the foundation of the IHI Group's risk response is to identify vulnerable points in the supply chain in advance and take measures to address them.

Morita: The aerospace, energy, and infrastructure domains in which the IHI Group operates all support the very foundations of society.
In these fields, it is more important to build up technology and a proven track record over a long period of time, thereby earning trust, than to produce results in the short term.
Against this backdrop, the IHI Group's fundamental approach is to identify the businesses in which it can continue to demonstrate competitiveness, concentrate its resources there, and continue creating value over the long term.

Kobayashi: What is important in that process is not to view technology or business in isolation.
As discussed, a business cannot be established through technology alone. It becomes viable only when clients' investment decisions, institutional frameworks, supply systems, and other necessary conditions are in place.
Accordingly, the IHI Group needs to design the business as a whole while considering how those conditions can be put in place and the extent to which it should be involved.
In doing so, the Group aims to build a framework in which value continues to accumulate by identifying where it should create value itself and where it should work with partners.

Sato: This way of thinking is equally important in the Aerospace domain. Over many years, the IHI Group has built the foundation of its business by combining technology, business operations, and supply systems.
Going forward, based on that foundation, the key challenge will be how to expand the IHI Group's supply capacity in response to growing demand. In doing so, rather than simply increasing headcount, the Group will respond by fundamentally reexamining the way it produces.
The IHI Group believes that continuing to fulfill its responsibilities in the fields where it is needed through these initiatives will ultimately lead to long-term value creation.